The elimination of scandal-tinged contingent commissions contributed to a 44 percent drop in Willis Group Holdings Limited's net income for the fourth quarter of 2005, the company said.

The London-based insurance brokerage firm reported net income dropped $48 million in the fourth quarter, going from $108 million, or 65 cents a share, to $60 million, or 38 cents a share. Revenues declined 4 percent, or $26 million, from $588 million to $562 million.

Besides losing $24 million in contingent commissions for the quarter, Willis said higher compensation costs, the effect of foreign currency translation and the sale of its wholesale operation, Stewart Smith in April 2005, contributed to the decline.

The company gave up accepting insurers' contingent commissions in 2004 after an investigation by New York authorities linked such payments to steering customers and bid-rigging. Last year the company agreed to pay $51 million in restitution to policyholders.

The company said it expects to see organic growth in commissions and fees in 2006, and salaries and benefits as a percentage of total revenues are expected to remain at 2005 levels. Revenues increased 14 percent, or $174 million in 2005, from $1.18 billion to $1.35 billion.

During an analyst's conference call, Joseph Plumeri, chairman and chief executive officer of Willis, said that the increase in salaries reflects the company's recruitment of quality sales executives over the year.

He said it takes a few years before the newly hired executives become accretive to the firm's growth. The benefits of this recruitment should begin to bear fruit this year, he added.

Mr. Plumeri said the company is seeing higher retention rates and would continue to invest in new people. He added the company plans to make additional acquisitions internationally through 2006.

"The marketplace remains competitive both in fees and premiums," said Mr. Plumeri. "Rates are generally soft except for energy risks in the Gulf of Mexico and [catastrophe] in property-exposed areas where there are poor loss records."

For the year, net income dropped 30 percent, or $127 million, from $427 million, or $2.54 a share, to $300 million, or $1.83 a share. Revenues were off less than 1 percent, or $8 million, from $2.28 billion to $2.27 billion.

Willis also announced a 9 percent increase in its quarterly dividend to 23.5 cents a share, or an annual rate of 94 cents a share, payable on April 14 to shareholders of record as of March 31.

Special Reports /

Willis Net Income Drops 44%

Related Stories

Recommended For You